SYDNEY (Reuters) - Asian shares hit decade highs on Monday and the dollar held firm early in a week in which the U.S. Federal Reserve is likely to wrestle with its bloated balance sheet as part of a long reversal of super-cheap money worldwide.

There was relief the weekend passed with no new provocation by North Korea, though Pyongyang's nuclear ambitions will be centre stage when U.S. President Donald Trump addresses world leaders at the United Nations on Tuesday.

Some details of Trump's tax plans may also emerge this week, while elections in Germany and New Zealand will add extra political uncertainty to the mix.

For markets, this week's main event will be the Fed's policy meeting on Tuesday and Wednesday, where it is likely to take another step toward normalisation on what is rapidly becoming a global trend.

Canada has already hiked twice in recent months and the Bank of England shocked many last week by flagging its own coming increases.

"This week is all about global liquidity, with the Fed widely expected to announce the unwind of its balance sheet on Wednesday and the BoE now seemingly on the verge of a hike, potentially as soon as November," ANZ analysts said in a note.

"With a backdrop of a number of central bank officials becoming increasingly hawkish, the stage is set for an unwind of market leverage and carry. We look for higher (market) rates this week."

Yields on U.S. 10-year Treasuries <US10YT=RR> jumped a hefty 14 basis points last week, but still trailed the UK where yields on 10-year paper <GB10YT=RR> surged 30 basis points.

STERLING RESURGENT

The seismic shift in rates saw sterling hit its highest since the Brexit vote and notch its best week in almost nine years against a currency basket. [GBP/]

On Monday, the pound was a shade softer at $1.3585 <GBP=> but not far from the peak of $1.3615. The euro was steady at $1.1945 <EUR=>, sandwiched between support at $1.1836 and resistance at $1.2092.

The dollar held firm on the yen at 111.21 <JPY=>, with the Bank of Japan widely expected to maintain its massive asset buying campaign at a meeting on Thursday.

Political uncertainty also made a surprise appearance after sources said Japanese Prime Minister Shinzo Abe was considering calling a snap election for as early as next month to take advantage of his improved approval ratings and disarray in the main opposition party.

Against a basket of currencies, the dollar was idling at 91.851 <.DXY> and still uncomfortably close to the recent 2-1/2 year trough of 91.011.

The modest bounce in the dollar combined with all the talk of monetary tightening put gold on the defensive. The precious metal was little changed at $1,318.96 an ounce <XAU=>.

Oil prices were hovering near five-month highs helped by forecasts for rising demand and the gradual restart of U.S. oil refineries. [O/R]

Brent crude <LCOc1> was up 2 cents on Monday at $55.64 a barrel, following gains of 3.3 percent last week. U.S. crude <CLc1> eased 1 cent to $49.88 a barrel.